Heads or tails, the government wins, Justice Kagan noted during oral argument this morning in the consolidated case of General Dynamics v. U.S. and Boeing v. US (Nos. 09-1298 & 09-1302).

The issue before the Court is whether the government can invoke state secrets privilege to prevent a superior knowledge defense in a civil suit.

Plaintiffs argue that their 1988 contract to develop stealth technology for the A-12 Avenger (artist's conception, below right) relied on the government subsequently providing classified, technical information. The government’s failure to do so resulted in the companies’ inability to meet their development schedule.

The government’s contracting officer found default termination of the contract and demanded the return of unliquidated damages—defined broadly by the Acting Solicitor General during oral argument as claims not approved by the government, in this case, some $1.35 billion.

The key problem with the plaintiffs’ position is that there is no language in the contract indicating that the contractors were to receive specialized information from the government. To the contrary, the government set up a competitive situation, awarding pre-contracts to two teams, to see who could develop the most impressive stealth technology. As Acting Solicitor General Neal Katyal noted, the contract was to acquire technology, not to provide it.

Katyal asserted that the courts should not be in the business of interfering in contract law, where sophisticated parties had the obligation to include any unwritten assumptions into the contract itself.

He further stated that plaintiffs’ failure to perform, explicitly contemplated in the language of the agreement, established the contracting officer’s right to determine default. In light of Totten, plaintiffs had been on notice that state secrets may be asserted in subsequent suits.

Herein lies the rub: Mr. Carter Philips, who argued for General Dynamics and Boeing, suggested that the government could not claim default termination and then hide behind state secrets when the contractors attempted to bring a superior knowledge defense. As the moving party, the government was in a position akin to that of a prosecutor in a criminal case—indeed, the money at stake was substantial: between $1.35 billion and $5 billion, depending upon the immediate calculus employed. Reynolds did contemplate such a situationand recognized that the government could not have it both ways.

The Acting Solicitor General disagreed: it was the plaintiffs, not the government, who brought suit. The plaintiffs, not the government, were thus the moving party.

Justice Scalia offered some well-founded skepticism: just because the legal action (here, default termination) did not occur in court did not mean that the government was not the moving party.

Justice Ginsberg went further: didn’t the plaintiffs’ claim that the government had a duty to provide information make plaintiffs the moving party?

Indeed, as Justice Roberts asked, could the government ever be the moving party?

Apparently not. A rather convenient rule, indeed.

According to the Acting Solicitor General, under the language of this contract, the government has an absolute right to unliquidated damages at the time the contracting officer determines default termination. Any plaintiff who brings suit will be the moving party. And if the suit moves forward, the plaintiff is on notice that state secrets may result in dismissal. If the contractors don’t like it, they can simply contract around the state secrets privilege.

But would the government accept language in a contract, Justice Roberts asked, that sets aside a state secrets claim?

Perhaps not, conceded Katyal – but there may be other options, such as alternative dispute resolution within the military, or a classified panel, or setting aside a certain sum of money. None of these, though, in the immediate suit, was of issue.

The case points to a much larger issue in state secrets, which is the utter inadequacy of the doctrine to take account of how deeply private industry has become involved in national defense.

In December,Penn Law Review carried an article I wrote detailing the use of the doctrine over the past decade.

The big surprise? State secrets has become a form of private indemnity – it is the contractors, in civil suits that range from breach of contract and patent infringement to personal injury and wrongful death, who often assert state secrets as an affirmative defense. They may then lobby the government to become involved.

The Boeing case is thus somewhat unusual, in that contractors are generally arguing for use of the privilege. They can’t have it both ways. But then again, neither can the government.

What is needed is a far-reaching solution that takes account of the degree to which U.S. national security has become dependent on private industry. Failure to come up with a civil solution—akin to the Classified Information Procedures Act (PL 96-456, 18 USC App. III, Secs 1-16) in criminal matters—will mean the continued miscarriage of justice and breach of fundamental fairness that inevitably occurs when parties are categorically denied their day in court.